Black Coffee: Panic at the Disco

Welcome to another rousing edition of Black Coffee, your off-beat weekly round-up of what’s been going on in the world of money and personal finance.

And away we go …

“All fiat money eventually returns to its intrinsic value: zero.”

— Voltaire

“He who panics first, panics best.”

— Anonymous

Credits and Debits

Debit: Venezuela: the gift that keep on giving — or should I say, “taking.” Despite being an obscenely oil-rich nation, Venezuela is now suffering from a gasoline shortage. No, really. You know … that reminds me of the old joke that says if you put a bunch of socialists in charge of the Sahara Desert, in five years the Sahara would suffer from a shortage of sand. Yes, it’s funny. But it’s also true. Forward!

Debit: Then again, the only reason why the US isn’t suffering the same fate as Venezuela is because it happens to be the owner the world’s premier reserve currency — for now, anyway. That exorbitant privilege allows the US to export its inflation globally. Even so, the US government has a growing problem, as the interest payments on its massive debt is fast approaching $2 billion. Per day.

Credit: Earlier this year, money manager John Mauldin believed a global debt reset was still “one or two years away.” But in an article for Forbes, he says he’s having second thoughts. “Recent events tell me the reckoning could be closer than I thought,” he says. Uh oh. Frankly, the fact that John’s concern was even published in Forbes suggests the current monetary system may be closer to total failure than many people want to admit.

Debit: Mauldin has a compelling reason for believing a monetary reset is imminent: 50 years ago a dollar of debt added $4 to GDP — today, it boosts GDP by just 44 cents. In other words, new debt is only doing more harm than good now — and its adverse effects are growing in magnitude with each passing day. Psst. Do you hear that? That’s the sound of the piper knockin’ at our door. Or something like that:

Debit: In other news, it looks like many Australians are worried that the Bank of England has surreptitiously sold off at least 11 of the 80 tons of gold they were charged with securely holding for the Land Down Under. Unfortunately for Australians, only 0.01% of their entire gold horde is held on their own soil. Again, if you don’t hold it, you don’t own it, folks.

Credit: On second thought, I guess Australia’s plight could be worse; they could have gone all-in on bitcoin last year. Bitcoin’s plunge continued this past week, falling as low as $3515 before recovering slightly to end the week at $3947. What’s truly amazing is not so much that bitcoin has fallen more than 80% in less than a year — it’s that the ephemeral cryptocurrency is still worth more than three ounces of gold.

Credit: By the way, bitcoin and America’s credit rating aren’t the only things that have been plunging. General Electric stock has taken a beating too; GE shares have dropped from $32 in 2016 to $7.50 today. And now stocks in general are moving down in lock step with the Fed’s quantitative tightening monetary contraction campaign — just as they moved upward in lock step during quantitative easing. Imagine that.

Debit: Of course, GE was one of Wall Street’s major share buyback operators between 2015 and 2017 when it paid $40 billion for shares between $20 and $32. According to MarketWatch, with GE stock now selling for far less than that, it turns out that for those three years, “GE has managed to lose more on its share repurchases than it made in operations, by a substantial margin.” And the pain is just getting started.

Debit: Last, but not least … New home purchases dropped last month to the weakest pace in two years. Meanwhile, previously-owned home sales dropped for a sixth straight month — that’s the worst decline since 2014. As a result, the emergence of picky buyers has many homeowners who are looking to sell feeling antsy. As for the army of leveraged home flippers looking to turn a quick buck, they’re … well, see for yourself:

Credit: Bloomberg is reporting that homebuilders are starting to panic too, “Offering price cuts of more than $100,000 along with free media rooms, cabinets and blinds. And real estate brokers are being enticed with free vacations to Lake Tahoe, Cabo San Lucas and even a dude ranch in Wyoming — all in the hopes that they’ll (find) buyers in slowing markets.” The trouble is, hope is never a good strategy.

By the Numbers

According to the government’s Consumer Price Index, prices for most things have barely budged during the past two years. If you find the following numbers to be more than a bit understated, you’re not alone:

3.2% Overall increase in the CPI since November 2016, excluding housing.

$101 The resulting overall increase in the monthly expenses of an average family in the middle 20% of income distribution.

1.1% According to the CPI, the total increase in grocery prices since November 2016; that’s an increase of just $3.33 per month for the average family residing within the middle 20% of income distribution.

$0.50 The overall increase in the monthly electricity bill since November 2016.

Note: There is a poll embedded within this post, please visit the site to participate in this post's poll.

Last Week’s Poll Results

Did you do any Black Friday shopping this year?

No (71%)

Yes (29%)

More than 1700 Len Penzo dot Com readers responded to last week’s question and slightly less than 3 in 10 said they did some shopping on Black Friday. Not me. I spent the day eating leftovers.

Useless News: Preaching the Faith

A priest, a minister, and a rabbi wanted to see who was the best at his job. So they each went into the woods to find a bear and attempt to convert it. Later that day they got together to compare how they did.

The priest said: “When I found my bear, I read to him from the Catechism and sprinkled him with holy water. Next week is his First Communion!”

Then the minister spoke: “I found a bear by the stream, and preached God’s holy word,” he said. “The bear was so mesmerized that he actually let me baptize him!”

Next to speak was the rabbi, who was lying on a gurney in a full body cast. “Looking back,” he said, “I probably shouldn’t have started with the circumcision.”

(h/t: Cowpoke)

Other Useless News

Programming note: Unlike most blogs, I’m always open for the weekend here at Len Penzo dot Com. There’s a fresh new article waiting for you every Saturday afternoon. At least there should be. If not, somebody call 9-1-1.

Hey! If you happen to enjoy what you’re reading — or not — please don’t forget to:

Every week I feature the most interesting question or comment — assuming I get one, that is. And folks who are lucky enough to have the only question in the mailbag get their letter highlighted here whether it’s interesting or not! You can reach out to me at: [email protected]

This week I heard from Taylor, who left this comment after reading my recent article on what you need to know before choosing a concrete contractor:

“Thanks for the great tips. My driveway is kind of old and lumpy, so I’ve been thinking it may be nice to replace it.”